AUD CPA Final Exam Questions All
Solved Correctly.
1 - Answer Engagement Responsibilities
Nature of an Attest Engagement - Answer Gives an assertion or opinion on the material of the
responsible party. They only apply to a CPA operating in public practice. Some services require a
CPA to disclaim assurance.
Attestation Standards - Answer General Standards (training, proficiency, knowledge). Should
be measurable. CPA must maintain independence.
Field Work Standards (planning and supervision & sufficient appropriate evidence)
Reporting Standards (Character of Engagement, conclusion, reservations, restrictions)
Acronym: TIPSC PE CCRR
Generally Accepted Auditing Standards and the International Auditing Standards - Answer The
General Standards were codified between GAAS and the AICPA's ASB. They basically converge
with international standards but still differ in some areas.
Who regulates issuers versus non-issuer audits? - Answer Issuers Audit = PCAOB, Non-issuer =
ASB Standards
Who issues Government Audit Standards? - Answer The yellowbook is the government
standards and is issued by the Governmental Accountability Office. It is ASB unless modified.
Federal Awards may require a single audit which falls under the OMB Single Audit Act.
Purpose of an Audit - Answer To provide financial statement users with an opinion on whether
the financial statements are presented fairly in accordance with the applicable financial
reporting framework and free from material misstatement whether due to fraud or error.
Professional Skepticism - Answer Required by auditors when performing an audit.
Audit Risk - Answer The risk that an audit will not detect a material misstatement. There will
always be audit risk, but the goal is to get that risk as close to zero as possible.
Managements Assertions - Answer CAVE CROC
Completeness
,Accuracy
Valuation and Allocation
Existence
Cutoff
Rights and Obligations
Occurrence
Classification and Understandability
Assertions about Transactions and Events (P&L and Cash Flows) - Answer Occurrence,
Completeness, Accuracy, Cutoff, Classification
Assertions about Account Balances (B/S) - Answer Existence, Rights and Obligations,
Completeness, Valuation and Allocation
Assertions about Presentation and Disclosure (Mainly notes to financial statements) - Answer
Occurrence and Rights and Obligations, Completeness, Classification and Understandability,
Accuracy and Valuation
PCAOB Assertions - Answer Same as above but they do not explicitly address accuracy.
Professional Responsibilities of Auditors - Answer Must comply with unconditional
requirements (i.e. independence).
Additional Professional Services - Answer Preparation (Non-attest), Compilation (Non-attest
but must be independent), Review (Limited assurance, performed by inquiry and analytical
procedure), agreed upon procedures (attest, must be independent), Prospective Financial
Statements, Examinations of Internal Control over Financial Reporting
Assurance Services - Answer Assurance > Attest > Audit
Does not include consulting services
Designed to enhance decision making
Quality Control - Answer Starts with Tone of the Top, ethical requirements, and other
procedures.
SOX requires a second auditor to sign off on audits. CEO and CFO must sign off on financial
statements.
SU 2 - Answer Professional Responsibilities
, Code of Professional Conduct - Principles - Answer Responsibilities, Protect public interest, act
with integrity, be objective and independent, act with due professional care, follow the scope
and nature of services
Code of Professional Conduct - Rules - Answer Fall under the principles, more specific.
Independence - Answer Must be independence in mind and in appearance.
Independence is impaired if a COVERED members has certain interests or relationships: Covered
= attest member, partner or manager who provides non-attest services, partner in office where
lead engagement partner practices.
Conceptual Framework for Independence - Answer Identify threats to independence, use
safeguards to minimize them to acceptable level.
How is independence impaired? - Answer If a covered member has a direct financial interest
in an attest client during engagement.
Covered member has loans to or from an attest client during engagement.
Covered member has indirect material financial interest.
Covered member is a executor of trust.
Covered member owns 5% or more of an attest client during period or engagement.
Immediate family of a covered member is subject to independence rules.
Close relatives can result in impairment but are less strict than immediate.
May be impaired by actual or threatened litigation.
What services impair independence? - Answer Covered member should not assume
management responsibilities.
Expert witness services, managing internal audit, tax advocacy services, appraisals all impair
independence.
NOT impaired by preparing taxes, business risk consulting, advisory services.
NOT impaired for non-issuer bookkeeping, payroll processing.
Integrity and Objectivity - Answer Must be objective and act with integrity and be free from
conflicts of interest, not knowingly misrepresent facts, and not subordinate his or her judgment.
Can conflicts of interest be permitted? - Answer Yes, if disclosed, and consent is obtained from
appropriate parties. This does not apply to independence.
Ex. Performing litigation for plaintiff when the defendant is a client.
Solved Correctly.
1 - Answer Engagement Responsibilities
Nature of an Attest Engagement - Answer Gives an assertion or opinion on the material of the
responsible party. They only apply to a CPA operating in public practice. Some services require a
CPA to disclaim assurance.
Attestation Standards - Answer General Standards (training, proficiency, knowledge). Should
be measurable. CPA must maintain independence.
Field Work Standards (planning and supervision & sufficient appropriate evidence)
Reporting Standards (Character of Engagement, conclusion, reservations, restrictions)
Acronym: TIPSC PE CCRR
Generally Accepted Auditing Standards and the International Auditing Standards - Answer The
General Standards were codified between GAAS and the AICPA's ASB. They basically converge
with international standards but still differ in some areas.
Who regulates issuers versus non-issuer audits? - Answer Issuers Audit = PCAOB, Non-issuer =
ASB Standards
Who issues Government Audit Standards? - Answer The yellowbook is the government
standards and is issued by the Governmental Accountability Office. It is ASB unless modified.
Federal Awards may require a single audit which falls under the OMB Single Audit Act.
Purpose of an Audit - Answer To provide financial statement users with an opinion on whether
the financial statements are presented fairly in accordance with the applicable financial
reporting framework and free from material misstatement whether due to fraud or error.
Professional Skepticism - Answer Required by auditors when performing an audit.
Audit Risk - Answer The risk that an audit will not detect a material misstatement. There will
always be audit risk, but the goal is to get that risk as close to zero as possible.
Managements Assertions - Answer CAVE CROC
Completeness
,Accuracy
Valuation and Allocation
Existence
Cutoff
Rights and Obligations
Occurrence
Classification and Understandability
Assertions about Transactions and Events (P&L and Cash Flows) - Answer Occurrence,
Completeness, Accuracy, Cutoff, Classification
Assertions about Account Balances (B/S) - Answer Existence, Rights and Obligations,
Completeness, Valuation and Allocation
Assertions about Presentation and Disclosure (Mainly notes to financial statements) - Answer
Occurrence and Rights and Obligations, Completeness, Classification and Understandability,
Accuracy and Valuation
PCAOB Assertions - Answer Same as above but they do not explicitly address accuracy.
Professional Responsibilities of Auditors - Answer Must comply with unconditional
requirements (i.e. independence).
Additional Professional Services - Answer Preparation (Non-attest), Compilation (Non-attest
but must be independent), Review (Limited assurance, performed by inquiry and analytical
procedure), agreed upon procedures (attest, must be independent), Prospective Financial
Statements, Examinations of Internal Control over Financial Reporting
Assurance Services - Answer Assurance > Attest > Audit
Does not include consulting services
Designed to enhance decision making
Quality Control - Answer Starts with Tone of the Top, ethical requirements, and other
procedures.
SOX requires a second auditor to sign off on audits. CEO and CFO must sign off on financial
statements.
SU 2 - Answer Professional Responsibilities
, Code of Professional Conduct - Principles - Answer Responsibilities, Protect public interest, act
with integrity, be objective and independent, act with due professional care, follow the scope
and nature of services
Code of Professional Conduct - Rules - Answer Fall under the principles, more specific.
Independence - Answer Must be independence in mind and in appearance.
Independence is impaired if a COVERED members has certain interests or relationships: Covered
= attest member, partner or manager who provides non-attest services, partner in office where
lead engagement partner practices.
Conceptual Framework for Independence - Answer Identify threats to independence, use
safeguards to minimize them to acceptable level.
How is independence impaired? - Answer If a covered member has a direct financial interest
in an attest client during engagement.
Covered member has loans to or from an attest client during engagement.
Covered member has indirect material financial interest.
Covered member is a executor of trust.
Covered member owns 5% or more of an attest client during period or engagement.
Immediate family of a covered member is subject to independence rules.
Close relatives can result in impairment but are less strict than immediate.
May be impaired by actual or threatened litigation.
What services impair independence? - Answer Covered member should not assume
management responsibilities.
Expert witness services, managing internal audit, tax advocacy services, appraisals all impair
independence.
NOT impaired by preparing taxes, business risk consulting, advisory services.
NOT impaired for non-issuer bookkeeping, payroll processing.
Integrity and Objectivity - Answer Must be objective and act with integrity and be free from
conflicts of interest, not knowingly misrepresent facts, and not subordinate his or her judgment.
Can conflicts of interest be permitted? - Answer Yes, if disclosed, and consent is obtained from
appropriate parties. This does not apply to independence.
Ex. Performing litigation for plaintiff when the defendant is a client.
